US Tanker Contract
August 7, 2008
The contract was initially won by the Northrop Grumman-EADS partnership but a congressional oversight committee upheld a protest by Boeing, effectively forcing the Pentagon to reopen the competition bid for the $35 billion (22 billion euro) contract, which could yield some $100 billion over the next 30 years.
The Pentagon has formally asked the companies to resubmit proposals to build the 179 KC-X aerial refueling planes. A final request will take place in mid-August and the companies will be asked to submit their proposals by Oct.1. A final decision on the contract is due in the first week of January 2009.
The Government Accountability Office (GAO), an investigative arm of the US Congress, ruled in a June 18 report that the Air Force made critical errors in awarding the contract to Northrop and EADS.
Initial tender strewn with errors
The GAO upheld a challenge by Boeing, saying it found "significant errors" in the Air Force's evaluation of the two bids.
It agreed that the Air Force had conducted "unequal and misleading" discussions with Boeing, leading the company to believe it had satisfied a key performance parameter, only to decide later that it had only been partially fulfilled.
The GAO also found that Northrop had been given extra credit for offering an aircraft that carries more fuel than the KC-135 aircraft it is meant to replace, even though the solicitation said no consideration would be given for exceeding the performance parameters.
"We've tried to be meticulous in ensuring that the bidders have a very clear and unambiguous understanding of the relative order of importance of our requirements," said Shay Assad, the Pentagon director for acquisition.
He added that the Pentagon will still give "positive consideration" to aircraft that can offload more fuel than the minimum required under the contract.
But it will now consider the cost of maintaining the aircraft over a 40-year life cycle, rather than a 25-year lifecycle, he said.
Assad told reporters that the new request was a modification of the previous one that includes GAO's recommendations.
"We are addressing this in a very measured and serious way to ensure that we can execute this procurement in a manner that is fair to both parties," said Assad. "Most of what's there really addresses the GAO finding and that exactly what we are trying to do."
Northrop-EADS unfazed by GAO decision
Northrop Grumman applauded the Pentagon's decision to keep the contract on a fast track.
"We are reviewing the draft request for proposal with an eye toward ensuring that it addresses the issues raised by the GAO in a way that facilitates a fair and non-political evaluation of the competing bids," Northrop Vice-President Randy Belote said.
Boeing has offered to use its 767 as a basis for the refueling aircraft, while Northrop-EADS is using the larger A330.
US Defense Secretary Robert Gates announced in early July that he had accepted GAO's findings and planned to restage the competition in an expedited process, citing the need to quickly replace the Air Force's aging fleet of tankers.
Attempts to find a replacement for its aging tanker fleet have run into setback after setback, beginning with a procurement scandal in 2003 that dashed its plans to lease the aircraft from Boeing.
Boeing has been the air force's sole supplier of air refueling aircraft, but its grip on the business slipped in February when the air force chose Northrop Grumman and EADS to build the next generation aircraft.
Both companies have mounted major public relations campaigns touting the manufacturing jobs gained or lost if one bid or the other succeeded.